HP: Q1 Results Outperform, 2022 Guidance Upped

HP Inc. (NYSE: HPQ) has posted upbeat earnings for the first quarter of Fiscal Year 2022 (ended January 31) on strong personal computer demand. Moreover, the company has provided revised annual guidance.  

Despite the beat, shares of the American multinational information technology company declined 2.6% in the extended trading session on Monday, following management’s warnings over macro issues. 

Results in Detail 

HP reported adjusted earnings of $1.10 per share, topping analysts’ expectations of $1.02 per share. The company reported earnings of $0.92 per share in the same quarter last year. Earnings also surpassed the company’s guidance range of $0.99 to $1.05 per share. 

Additionally, net revenue of $17 billion grew 8.8% year-over-year and surpassed the Street’s estimate of $16.52 billion. 

Segment-wise, net revenue from Personal Systems increased 15% year-over-year to $12.2 billion. Consumer net revenue declined 1%, while Commercial net revenue grew 26%. Though total Notebooks units reflected a decline of 9%, Desktops units inched up 3%. 

On the negative side, Printing net revenue fell 4% to $4.8 billion. Consumer net revenue of Printing decreased 23%, while Commercial net revenue of Printing grew 9%. Meanwhile, net revenue at Supplies was down 2%. Total hardware units declined reflecting a 31% decrease in Consumer units and 3% in Commercial units. 

Adjusted operating margin came in at 8.8%, down 60 basis points. 

HP exited the first quarter with net cash provided by operating activities of $1.7 billion and a free cash flow of $1.4 billion. 

Official Comments 

In response to encouraging first-quarter results, HP CEO Enrique Lores said, “We once again delivered strong top and bottom-line results with record revenue driven by strong demand and our leadership in hybrid. Our Q1 performance was particularly strong across our key growth areas that collectively grew double digits including gaming, peripherals, workforce solutions, consumer subscriptions, and industrial graphics and 3D. Our performance reflects progress against our strategy to build a stronger HP.” 

Outlook 

In response to Russia-Ukraine issues, HP CFO Marie Myers commented, “In Q2, we expect a negative impact to our top line and bottom line as a result of the sanctions that have been imposed. In total, net of mitigations, we have factored in a $0.02 to $0.03 EPS headwind to our Q2 guidance. For the second half of 2022, the broad ramifications of the situation in Europe and beyond are uncertain and we are monitoring this closely.” 

The company warns of industry-wide supply chain challenges that are likely to impact revenue in March as well. Additionally, component and logistics constraints are expected to persist in the second half of 2022. 

For Fiscal 2022, the company now expects adjusted EPS in the range of $4.18 to $4.38 versus the consensus estimate of $4.17 per share. 

For Fiscal Q2 2022, adjusted EPS is forecast in the range of $1.02 to $1.08 against analysts’ expectations of $1.02 per share. 

Capital Deployment 

During the first quarter, HP returned $1.8 billion to shareholders as share repurchases and dividends. This represents a 127% payout of first-quarter free cash flow. 

CEO Enrique Lores said that the company expects “to continue to make organic and inorganic investments in areas where we see growth opportunities while continuing to return capital to our shareholders, and we are committed to aggressive repurchase levels of at least $4 billion in fiscal year 2022.” 

Analysts’ Recommendation

Overall, the stock has a Hold consensus rating based on 1 Buy and 3 Holds. The average HP price prediction of $39 implies 13.5% upside potential. Shares have gained 19.2% over the past year. 

Risk Analysis 

According to the new TipRanks Risk Factors tool, the HP stock is at risk mainly from two factors:  Finance & Corporate and Macro & Political, which contribute 12 and 6 risks, respectively, to the total 32 risks identified for the stock. 

Though HP is at a higher risk, from a macro standpoint than other companies in its industry, it remains less risky from a financial standpoint. Given its risk profile and current stock movements, investors might decide to hold this stock in their portfolios. 

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